UniCredit's Banco BPM Merger Hangs on EU's June 4 Ruling Amid Political Turmoil

The European Commission’s June 4 deadline to approve or block UniCredit’s €10.1 billion acquisition of Banco BPM has become a flashpoint in a broader clash between national sovereignty and EU regulatory authority. With Italy’s government imposing unprecedented "golden power" conditions on the deal, the merger’s fate now hinges on whether Brussels will override Rome’s political intervention or allow it to derail one of the largest banking consolidations in the Eurozone.

The EU’s Dual Review: Antitrust and Foreign Subsidies

The European Commission’s review focuses on two critical areas: whether the merger would distort competition in Italy’s banking sector and if UniCredit’s acquisition involves foreign subsidies requiring scrutiny under the EU’s 2023 Foreign Subsidies Regulation. The Commission’s decision could either greenlight the deal or impose remedies to mitigate market dominance concerns, such as divesting branches or assets.

The foreign subsidies review is novel here. UniCredit, Italy’s largest bank by assets, has argued that no subsidies are involved, but the EU’s strict new rules require scrutiny of any state support, including implicit guarantees or favorable terms. A rejection on either count would kill the deal, while approval could reshape Italy’s banking sector.

Italy’s "Golden Power" Gambit

Meanwhile, Italy’s government has weaponized its golden power—a tool historically reserved for blocking foreign takeovers of strategic assets—to impose unprecedented conditions on the merger. These include:
- Mandatory divestment of €22.2 billion in southern Italian loans by December 2025 to prevent market dominance.
- A 13.2% minimum Common Equity Tier 1 (CET1) capital ratio to ensure financial stability during the divestment period.
- A forced exit from Russia by December 2025, despite UniCredit having already reduced its Russian exposure by ~90% over three years.
- Restrictions on asset management activities under Anima, Banco BPM’s subsidiary, limiting UniCredit’s operational autonomy.

The government’s move is widely seen as politically motivated. Prime Minister Giorgia Meloni’s coalition aims to use the merger to influence UniCredit’s stance in a separate proxy battle over control of Assicurazioni Generali, Italy’s largest insurer. Analysts note the conditions’ lack of precedent: golden power has never been applied to a domestic banking merger, raising concerns about overreach into EU regulatory jurisdiction.

UniCredit’s shares have traded at a depressed 0.6x price-to-book ratio—a historic low—reflecting investor skepticism about navigating these regulatory and political hurdles.

Market Reactions and Risks

1. Banco BPM’s Formal Rejection: Banco BPM’s board has already rejected the offer, calling it undervalued (a 9% discount to market price) and noting UniCredit’s failure to meet three prior conditions. Shareholders would receive only a 14% stake in the merged entity, below their projected 18% profit contribution by 2027.
2. Divestment Execution Risks: UniCredit faces immense pressure to offload €22.2 billion in southern Italian loans by year-end. Analysts warn that rushed sales could strain capital buffers, especially with its CET1 ratio at 14.3% (as of Q3 2023), leaving minimal room for error.
3. Geopolitical and Operational Constraints: The Russian exit requirement adds diplomatic and financial complexity, while the asset management restrictions could lead to regulatory fines if not meticulously complied with.

The Path Forward and Investment Implications

• EU Approval Scenarios:
• Best case: The Commission overrides Italy’s golden power conditions, greenlights the merger, and UniCredit executes divestments efficiently. This could unlock €1.3 billion in synergies by 2027 and solidify UniCredit’s position as Italy’s largest bank.

• Worst case: The EU rejects the deal over antitrust concerns or foreign subsidies, leaving UniCredit to absorb the costs of its abandoned bid.

• Key Metrics to Watch:

• CET1 Ratio: UniCredit must maintain at least 13.2% during divestment. A drop below this threshold would trigger regulatory scrutiny and investor panic.

• Divestment Timeline: Success hinges on selling the €22.2 billion in loans by December 2025. A delay could force UniCredit to seek capital raises or restructuring.

• Political Fallout: Meloni’s government faces internal dissent over the golden power’s use. A rejection by the EU could weaken her coalition and fuel broader Eurosceptic sentiment, complicating Italy’s EU relations.

Conclusion: A High-Risk Gamble with Uncertain Rewards

The UniCredit-Banco BPM merger is a microcosm of Italy’s struggle to balance national interests with EU integration. While the deal promises to create a banking giant with €760 billion in assets, its success depends on three critical factors:
1. EU Overriding Golden Power: Brussels must decide whether Italy’s conditions breach EU law. A rejection of the merger or the conditions would send shockwaves through Italy’s financial sector.
2. Divestment Execution: UniCredit must navigate €22.2 billion in asset sales without breaching capital thresholds. A mishandling here could trigger a downward spiral in its already depressed stock price.
3. Political Calculus: Meloni’s government risks overreach if it continues to use golden power for non-security purposes, potentially alienating EU partners and investors.

For investors, the merger represents a high-risk bet. UniCredit’s stock, trading at a 0.6x price-to-book multiple—far below peers like Santander (1.1x)—reflects this uncertainty. A positive EU ruling by June 4 could catalyze a rebound, but failure risks deepening investor disillusionment. As of now, the odds favor a cautious approach: the merger’s structural risks, coupled with Italy’s political volatility, suggest the reward may not justify the risk.

Final verdict: Monitor the June 4 ruling closely, but tread carefully—this deal is as much about geopolitical theater as it is about banking economics.